The Board of Directors of the African Development Bank has approved a US $50-million unfunded Risk Participation Agreement for Commerzbank AG (Commerzbank).

A statement by the Bank on the facility today indicated that the Risk Participation would leverage Commerzbank’s support to African issuing banks seeking to expand their trade finance operations.

Specifically, the bank stated that the facility would help address trade finance market demand in key economic sectors such as agriculture and manufacturing.

Also, the facility will also foster financial sector development, regional integration and boost government revenue generation.

The Bank’s Financial Sector Development Director, Stefan Nalletamby, said: “Commerzbank is a strategic partner for implementing the Bank’s development mandate. This intervention will improve market access by African issuing banks, corporates and SMEs.”

AfDB noted that most African banks remained small and struggled to obtain adequate trade finance facilities from international confirming banks to support African importers and exporters.

The bank’s additionality lies in the use of its “AAA” credit rating to provide comfort to Commerzbank to increase its trade finance exposure to local African banks.

According to the continental development finance institution, the portfolio of trade transactions supported will represent various economic sectors, adding that the facility is thus well aligned with the Bank’s strategic priorities – the “High 5s” that are aimed at transforming Africa.

The Risk Participation Agreement will run for three years as a 50/50 risk sharing arrangement. Counting rollovers, it is expected that the facility will support approximately US $700 million of trade in Africa over the period.

The latest RPA is the Bank’s second of such initiative with Commerzbank, a major player in the global trade finance market with a significant Africa footprint.